Broker expense and Hard Money

[James McGovern]

Is it a given that using a broker will always cost significantly more than going directly to a hard money lender?

[Nick Belsky]

@James McGovern

Bit of a loaded question... 

For bridge loans, lenders will normally charge a point or two and collect interest on payments to meet their margins.  The broker only gets paid at closing and one time, in most cases.  Generally speaking, lenders charge between 1-2 points as do brokers.  If the loan amount is smaller, then most have minimums were percentages may look awful high, but the dollar amount isn't actually that much.  Alternatively, as the loan amounts get higher and higher, most lenders will not lower their fees, where most brokers will.  All is relative to individual brokers and lenders, of course.

For perm loans, like DSCR, the vast majority of lenders don't charge any points and rely on their profits coming from a one time underwriting or processing fee and the sale of the loan to the secondary market. Brokers will almost always have a much higher fee than lenders for perm loans. Some brokers are able to bake their fees into the rate to make their fees lower, but you are still paying for it one way or another.

For Commercial loans, it is entirely different and varies greatly by product. SBA programs limit broker fees and are not allowed to be on the HUD at all. Small Balance loans are usually limited to 2% for brokers and I rarely see a lender charge any points on these. For institutional such as Balance Sheet loans or Structured Financing, things get pretty creative, but lender's fees look low as they bake it all into the rate. For CRE bridge loans, they are pretty similar to residential ones. 1-3 points are pretty normal with a 1-2 point broker fee on top.

Everything is subject to each specific deal, but I can say as a broker, I do typically charge a little more on the first deal with a client as I have nothing on them. I have to build the profile, verify experience, financials, docs, etc... there is a lot more that goes into that first loan than most folks realize. Subsequent loans get lower broker fees as I already have 80% of the file and only need updated docs and deal specific docs to do my prelim underwriting before quoting and submitting to a lender for pricing. I can't speak for all brokers by any means, but I don't believe in hiding fees and fully disclose my fees in my quotes and ensure they are disclosed on the HUD, if allowed.

Hope this sheds some light on things for you.  Always happy to chat if you'd like to dive in a bit deeper as well. 

Cheers!